Before I get started, I want to add a quick note here that before you can trade the /ES on Interactive Brokers, you need to have permission to trade futures and futures options. And also, you need to have the subscription that costs $1.25 a month that provides real-time data on the futures and futures options. That’s a separate topic that I’m not going to get into today about how to do that.
In this video, I will go over how to properly execute a multiple option leg spread in Interactive Brokers Trader Workstation in the mosaic format. I will also go over how to filter and find
/ES futures options based on the DTE or days until expiration. Learning these two things are recommendations I have in order to properly trade certain trade structures which are usually long volatility hedges, such as The Domm Hedge.
There are certain options trade structures that are more efficient when using portfolio margin or span margin. Portfolio margin can be used with most any stock, ETF, or index. Span margin is used when trading futures or options on futures.
The trade structures that I’m talking about can take up too much margin when you’re using reg-t or just regular margin. For example, you may want to add a certain options trade like a long volatility hedge, and when using portfolio or span margin, it may require only $3,000 in buying power. But if you’re using regular margin for example, the same trade can take up to $30,000 in buying power. If you want to hedge a $30,000 portfolio, and it takes $30,000 to do it then obviously the hedge is not efficient.
When using portfolio margin or span margin, these trade structures become cost effective to apply. So why use options on the /ES or the E-minis? Well, because span margin is available, which is a key component to an effective volatility hedge. So why not portfolio margin? Well, because you need a minimum of $100,000 to get portfolio margin and that makes portfolio margin out of reach for a large percentage of people.
Now, span margin can be used in an account as small as $2,000. Now, why Interactive Brokers? I personally prefer ThinkorSwim but the commissions of options on the e-minis or the /ES cost over $2.80 per contract. And on Tastyworks, the commissions are $2.50 per contract. And these commissions add up quickly and they’re relatively high. On Interactive Brokers, they are lower and they’re at a reasonable $1.40 per contract. This is why I would use Interactive Brokers.
Now with all this said, when it comes to a long volatility hedge such as the Domm Hedge, I recommend obtaining span margin and trading options on the /ES or the e-minis using Interactive Brokers. If you’re using The Domm Hedge or most any long volatility hedge, it is important to be able to filter through and find the proper /ES options chains in order to execute the trade efficiently.
The problem I came into was when you put on the E-mini, /ES options chains, or different cycles, you don’t get all of the DTE’s. You don’t get–up in the upper tab–you don’t see; for example, up in here, you don’t get all the days or expirations. You know, sometimes they skip from 14 days to 120 days to 350 days, you don’t get all of the available ones.
So I’m going to go over how to do that. At this point I’ve been personally using Interactive Brokers Trader Workstation for a few years now, and I use it to trade options on the $SPX and I’ve been placing these trades side by side with my other account in ThinkorSwim. And I’ve relied on ThinkorSwim to find my execution prices so I needed to learn, you know, a couple things about the Interactive Brokers platform recently. And I needed to learn how to filter the /ES options by DTE (days until expiration) and I needed to learn how to execute a multi-leg options position at a fair price using only the Interactive Brokers platform.
With these questions, I called Interactive Brokers and Step 1 was to make all the /ES options expiration cycles available so I can filter through them. After spending 17 minutes with the first Interactive Broker rep., he could not help me. So I asked him to call me back when he figured it out and he never called back. So I called Interactive Brokers back again and the second rep. could not help me either.
Now, this is where Ron Bertino’s Mastermind comes in handy. As I posted my question in the Slack forum and I found a friend that could help. I knew this was a good place to go because this forum is made up of traders that execute multi-leg options trades on many different
brokers platforms every single day.
I found a friend that has experience trading on Interactive Brokers and he helped me with the details, which I will share in this video. By the way, if you would also like access to this Mastermind group, it comes with Ron Bertino’s course and I left a link in the description of my review of the course and a link to purchase the course.
Okay, let’s get into this. So first how do you filter and find /ES futures options based on the DTE on the IB platform? Well, first you need to set up the platform, and I’m not personally going to go over this, but I left a link in the description on how to set up the overall platform. And it is best that this is done before you move on to these next steps that I’m going to go over.
The video I like on how to set up the platform–how to set it up in general–was done by a guy from Drawbridge Finance, and I don’t know much about this guy but I did like his tutorial on this subject so I put a link in the description for his tutorial. And one side quick note here is one thing I like is to have the Deltas. You can see how I have the volume, the bid, ask, and then positions and then Delta. I like to have this Delta here because I do a lot of work based on this Delta column. So when you’re setting up the platform, if it was me, I would have the Delta column in here as one of my things to look at.
Okay, now let’s get into the details. Step 1. So the first thing we’re going to do is we’re going to make sure that we have access to all of the options contracts available for options on the /ES.
So Step 1, in the watch list tab, you need to add /ES as one of your symbols. So let’s do that now. So I’m going to put a forward slash ES, E minus for the E-minis. Now, this little box pops up here, and you want to press right here under the E-mini Globex, hit futures, and then another box pops up. You just pick any of these; it doesn’t really matter which one. But you need to populate this field here.
Now that that’s populated, you’ll see that you’ll have these options here of which expiration cycle or options chain that you want to trade. But the problem is this, one’s at 43 days until expiration [and] this is 134 days.
Well, what if you wanted something, say for example, close to 90 days? Well, it’s not in here and that was the first problem that I had to solve. It’s pretty simple. So now that this is populated, what you do is you go in all the way over here, to the/ES, you hit that, and then you just check all these boxes on the right hand side. Hit close.
Now everything’s all available. So we want to find something, what around 90 days, I said. So we’ll just go into maybe August and there you go. You’ve got something 71 days, 85 days, and 106 days. So you can choose, these are all the cycles they’re all available now for you to trade.
So that was Step1. It’s relatively simple. Now that you can filter your expiration cycle on the options on the /ES based on DTE, I’m going to go over how to execute a multiple options leg trade.
Okay, I’ve switched accounts here because the account I was using before had not been approved for trading futures and this permission is easy to get; typically takes about 24 hours from Interactive Brokers. The account I was using before in my previous part of this video was a partnership and getting permission to trade futures with a partnership takes more time and paperwork so I’m just going to go into my other account for this next step here.
Now that I can filter my expiration cycles on the/ES based on DTE, I’ll go over how to execute a multiple option leg trade. The goal here is to get a fair price and to get a fair price you want to be able to find a decent mid-price and a decent order entry price before working the order.
In this example, I’m going to use a four-legged structure. Pretty much whenever you’re putting on these types of structures like The 2060 or The 5-Step or The Domm Hedge, or premium selling structures in general; my goal when opening is to obtain the highest credit I can achieve because I sell premium and almost all of the trade structures that I talk about are selling premium.
Now in the Interactive Brokers platform, opening for a credit will mean that I want the highest negative number I can get. So the platform looks at negative numbers as a credit going into my account. So let me set up an example.
Let’s just say I’m going to… if I’m going to execute a trade, first I’m going to hit this strategy builder. I’m going to turn it on and that’ll help me populate the option. Let’s see, see right here, we’re at the money but let’s just go up here, let’s say that I’m going to just sell this put sell the same strike; do like an iron fly; buy something up here.
I’m just, you know, putting stuff together real quick. So I just put these four legs in here. It’s just like an iron fly but you can see here this is a negative number. These are negative numbers because it’s going to be done for a credit, and that’s the key point of making–when you’re doing a structure where you want to, this is an iron condor, or an iron fly but when you do a structure where you want to bring in credit with Interactive Brokers you’re going to do that for the highest negative number you can get.
So I’d rather get this. I’d rather sell this for -23 than -21. -23 is a better price for me right now. When I go to buy it back, I want to buy it back for a profit, and if I get a profit that means I would buy it back for let’s say -20 or -15 or 0 or a positive number.
Okay, so I just wanted to kind of make that point about how this is calculated. Now how do I get like a fair price for this, like how do I know what a good midpoint is because this midpoint right here is jockeying around quite a bit; like it’s 22.50, 22.25. You don’t know if that’s really a fair price by just using this little part right here.
So this is one of the things that I think is really cool about Interactive Brokers. And what you can do is you can actually chart the mid-price and so here is a thing that was put together for me by a friend of mine in the Mastermind. He actually showed me how to create the chart, what to click, when we’re creating this chart so I’m going to use this as a guideline.
So what I’m going to do is go into this chart here. I’m going to right click and hit chart parameters. And you can see that’s very similar to what is here. And here you can say… First of all, he likes the 1-week 10-minute candles. You know, we can do like just for today and 10 minute candles, so that’ll just be what’s going on today.
Okay, and then we have the midpoint. Every time I press this that thing goes away, but then we have the midpoint here and we have keep-chart-up-to-date, that’s already pressed. We have display vertical scroll and we have–my trade has triangles, that’s just basically shows what your trade is. You can I can click that there and now I hit apply and okay.
Now, what I want to do is take this position, let’s just say that this is the position I want to trade. Of course this is a totally random position I just made up on the fly. And you just hit add to watch list. Okay, now it says that it’s added to the watch list. Where’s that watch list? It’s over here. So here it is. So I’m going to highlight it and now we’ve got this 10 minute candle thing.
Let’s see, let’s go back… A lot of times the truck parameters kind of reset themselves. See how that reset itself, the trade, so you kind of have to constantly battle this thing and apply it and put the mid-price. And you can just always charge this in a combo. Let’s just look at the last two days and press on it and there it is.
Now, so this is the mid-price of this position right here which is really awesome to see because you want to really get a fair price. Now, one thing we need to do is kind of fix this thing, and see that makes it smaller or and this makes it bigger, so you want to play with this.
You want to make this, you know, as small as you can. Make this little part of it like thin and then you can move this up and down to kind of get where it is. So you can see that this mid-price. Well, let’s make it even bigger. Well, you know it went from, you know, -2125 to -23, somewhere in there. So, you know, your mid-price at one point was -23.25.
Right now, it’s telling you it’s -22.25. So it is possible maybe to get filled at midpoint. You always don’t always get it filled at midpoint, but this gives you an idea of where that was. You know over the last whatever time frame you put in here, two days. So you know you get a good deal if you got into this particular position at -$23, you know, right and down in here. And if you got in around -$22, you probably got a bad fill, right. So, you can see so, you know, let’s go ahead and look at this -22.
Obviously, I want the highest credit as possible that I can get. What I can do is press here and I can shoot for a higher negative number and work my order. So let’s just say that I… Okay, so it says I gotta go in $0.25 increments, so that’s fine. Okay, now one other thing, I want one other point I want to make is whenever you put an order in here on the top, you always want to put your lowest common denominator. So let’s say you want to do two of these and three of these or whatever combination is, the lowest common denominator you want to have and then you can change your quantity. Then it multiplies their quantity so say I wanted to do three of these, so this would be 3, 3, 3, 3, because I did quantity of three.
Okay, let’s just do quantity of one, but that’s important keep this to the lowest common denominator. You don’t want to make this, you know, if you want to do six of these you don’t want to put 6,6, 6, and 6 and then 1. You don’t want to do it that way, you want to put 1, 1, 1, 1, and then put quantity of 6.
Okay, it gets really confusing if you don’t use the lowest common denominators here and change the quantity here. You’re going to the pricing gets really confusing. You don’t want to do it that way so that’s just an important point. nNow, let’s just say that I’m going to try to get $23.75 or let’s just say even $24 because I don’t want this order to fill so if I hit submit order you can see this “C” here.
This means that you’re bringing in a credit. This one’s going to bring in a credit of $1,200, that negative number. If there’s a “D” that means you’re paying a debit but this is bringing in a credit. Okay, so you always can double check your order here, hit transmit. Now, I have an open order and you can see it kind of fills this little area down here.
Now, I’m trying to get $24 for this. And I can tell that it’s not going to fill at $24 because I see the mid-price never hit $24 in the last two days. Now, in order to work this order, I can change this $24, let’s say to $23.75. I’d be working this order towards the midpoint where it would get filled and I hit $23.25 then I update it. and of course it hasn’t filled. You can see 0 of one and I don’t want it to fill so that’s why I’m kind of messing with this higher number here.
Actually, it’s a lower number because it’s a credit but I just wanted to go over that’s basically how you get a good fill when you have multiple legs and there are options and you can determine what a good price would be and then how to create the order and how to get the order filled you just keep working the order. The next thing I would do is if that didn’t fill, okay I’ll go to $23.50, and then I’ll hit update. And I keep working the order down until it fills and that’ll get that’s the way to execute and get the best price that you can get with your structure.
Now, if this was useful all I ask in return is that you hit that like button. And also, if you’re interested I have created a free proprietary options training course and you can see the link in the description for that course.